Wednesday 21 March 2018

Blackstone buys the biggest apartment complex in New York in multibillion dollar deal

Blackstone is buying the Peter Cooper Village in Stuyvesant in New York for $5.3bn
Blackstone is buying the Peter Cooper Village in Stuyvesant in New York for $5.3bn

Hui-Yong Yu

Blackstone has reached an agreement to buy New York's Stuyvesant Town-Peter Cooper Village, a deal that would put Manhattan's biggest apartment complex in the hands of the world's largest private equity firm and maintain some affordable housing at the property.

Blackstone, working with Canadian investor Ivanhoe Cambridge, will pay about $5.3bn for the 80-acre enclave. That's just under the record $5.4bn that prior owners Tishman Speyer and BlackRock paid nine years ago before defaulting on the mortgage in 2010 and walking away from the property, marking one of the biggest collapses in the last decade's real estate boom.

A sale to Blackstone would end five years of uncertainty over ownership of the complex, home to about 30,000 residents and one of the last bastions of affordable housing for middle- class New Yorkers. The deal includes an agreement with the city that would keep almost half of the more than 11,000 apartments affordable for 20 years, according to the mayor's office.

The transaction includes about $225m in tax breaks offered by New York City.

A Blackstone spokesman, declined to comment, as did a spokesman for CWCapital Asset Management, which had been in control of the property on behalf of bondholders. A spokesman for Ivanhoe, didn't respond to an e-mailed request for comment after regular business hours. The company is the real estate arm of Canadian pension fund Caisse de Depot et Placement du Quebec.

Stuyvesant Town-Peter Cooper Village, located between 14th and 23rd streets on Manhattan's east side, was built in the 1940s by MetLife, with city assistance, to house World War II veterans. Tishman Speyer and BlackRock handed the property over to lenders after its value plunged in the financial crisis and tenants successfully sued to stop a dramatic increase in some rents.

Now, apartments have led the five-year recovery in US commercial real estate values. Prices for multifamily buildings are a third higher than they were at the previous peak in 2007, according to Moody's Investors Service and Real Capital Analytics The median rent in Manhattan was $3,405 in the third quarter, the highest in records going back to 1991, data from Miller Samuel and Douglas Elliman Real Estate show.

Stuyvesant Town is "so big, it's so well located, there's still so much upside in it that someone is still going to make a lot of money if you hang in there," said Peter Hauspurg, chief executive officer of brokerage Eastern Consolidated, who isn't involved in the deal.

Daniel Garodnick, the city council member who represents the district where Stuyvesant Town is located, said that about 5,000 of the units will be preserved as "affordable" for 20 years, with a five-year phase-in of the rent increases. Another 1,400 units that have their rents regulated until 2020 will now be regulated until 2025.

About 10pc of the 5,000 units would be reserved for families making no more than $62,000 a year, which would equate to a monthly rent of about $1,500 for a two-bedroom apartment, said Wiley Norvell, a spokesman for Mayor Bill de Blasio. The other 4,500 units would be for families making as much as $128,000 a year, which would translate to about $3,200 a month.

The 1,400 units that will gain another five years of rent protection will see annual increases of no more than 5pc under the agreement, he said.

Blackstone -- which earlier this year led the biggest real estate transaction since the financial crisis, the $23bn purchase of properties from General Electric -- now stands to be one of the biggest apartment landlords in New York and extend a push into owning rentals around the country.

The New York-based firm made its first multifamily purchase in Manhattan in September, leading a venture that acquired 24 buildings for $690m. Jon Gray, the company's head of real estate, said this month that he was bullish on the borough's rentals because it's too costly for many residents to buy.

Blackstone has been acquiring rental properties in the aftermath of the housing collapse, wagering that demand would exceed supply for several years, at least. It started by buying foreclosed houses in bulk in 2012, forming a management company called Invitation Homes, now the largest U.S. single-family landlord.

The firm has been on the hunt for US multifamily buildings since it created an apartment-management company in 2013. Chicago-based LivCor, built around the acquisition that year of stakes in properties valued at about $2.4bn, now oversees more than 35,000 rental units in 19 states.

The Stuyvesant Town purchase will be made through Blackstone's first fund for core-plus real estate, the person with knowledge of the matter said. The open-end fund can hold assets for decades, unlike the firm's traditional property funds, which have a finite life and typically require holdings to be sold and money returned to investors in seven to 10 years.

Blackstone has about $8.5bn of core-plus assets under management, President Tony James said earlier this month.

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